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Economic stimulation, not a priority!

May 30,2018 - Last updated at May 30,2018

The government's insistence to extend support and funding for the vague economic stimulation plan is marred by untenable disengagement with prevailing fundamentals and core national priorities.

In fact, the goal of stimulating the economy contradicts itself with the dominant national policy of favouring stability and resilience over economic growth targets. The policy under which Jordan successfully preserved economic stability but only at the expense of economic competitiveness, was mostly drained by the consecutive fiscal tightening measures over the past 5 years.

The huge increase in prices and the immunity of the Jordanian Dinar have left Jordan vulnerable to lopsided competition with regional players with ample resources, sizable market and much more advanced infrastructure.

This trap has severely hampered Jordan's ability to lure foreign and domestic investments given the unprecedented deterioration in local purchasing power and the unfavourable competitiveness position in the regional landscape.

Even for middle class and well-off Jordanians, the notorious competitiveness trap continues to steer their tourism spending and real estate investments towards other regional markets with depreciated currencies and more optimistic outlook, like Turkey, Egypt and Arab Gulf countries.

The negative outcomes of opting steadfastness and stability at the expense of competitiveness render conventional stimulation plans with impalpable quantitative targets as ineffective as pouring water into the ocean.

In fact, it has never been as timely for decision makers in Jordan to acknowledge the ominous new economic normal along with the underlying conviction that only a political breakthrough is capable of digging the economy out of its hardships.

Instead of deploying scarce budget resources in funding the ineffective economic stimulation plan, the government should rather enforce consistency by directing the funds back towards its utmost original priority of preserving stability and bolstering economic and social resilience.

Rather than squandering hundreds of millions of dinars on low added value and non priority capital projects, authorities have the choice of utilising the money in bolstering resilience by cutting budget deficit and assisting citizens in coping with the protracted economic plight.

By adopting this option, the government can replace part of the upcoming austerity measures by cutting lower priority capital expenditure. If more room is available, the government can even cut capital expenditure to bridge part of the fiscal deficit and reduce the country's vulnerability to potential external pressures in the short and medium terms.

The government can also consider revisiting its capital expenditure plan to enforce better prioritisation by redirecting budgeted funds towards the very core public services that directly befall people's livings, namely health, education and housing.

Touching on Jordanian's livings is indeed the last resort to regain part of public confidence, which exemplifies the cornerstone of social and political stability in our turbulent region.

Simply, Jordan is in a pressing need for a plan to entrench economic and social resilience rather than a plan to stimulate its economy. Economic stimulation endeavours should only be limited to zero cost supply side reforms, similar to ones recently undertaken to upgrade land use regulations, and awarding residency to investors.

The spectacle of huge spending on roads, electronic government, and healthcare IT databases while students and patients lack basic facilities in public schools and hospitals is untenable.

One step in the right direction is the recent downsizing of Jordan's nuclear project. Yet, more is needed.

 

The writer, an economist and columnist, contributed this article to The Jordan Times

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